The Hindu Business Line : Endorsing a tax

THE CENTRE'S DECISION to impose a service tax on endorsements by celebrities is unexceptionable considering the nature of the activity and the generally accepted principles of taxation. There has always been a debate about whether endorsement of a product by a celebrity actually fetches it higher revenues. While that may be a legitimate area of inquiry for marketing professionals and academics, it is altogether irrelevant from a fiscal perspective.

In endorsing a product there is a perception that the celebrity is performing a valuable service. The celebrity is seeking to transfer the positive image/attributes that he has in the public mind on to the product. Needless to say, it has positive implications for the sales of that product. There is an added justification as well: With services now accounting for more than 50 per cent of the GDP, it is difficult to conceive of a system of taxation without factoring in some contribution from this sector. Unfortunately, much of the services is performed by economic agents in the unorganised sector rendering the setting up of machinery for assessment and collection of taxes virtually impossible. Which is why the contribution of service tax is a minuscule Rs 8,000 crore against the Centre's total tax revenue of roughly Rs 1,80,000 crore.

A tax on celebrity endorsements by the very nature of things may not pose any administrative challenge to the government, though it may not be without its legal challenges. With the globalisation of sport and other recreational activities, celebrity endorsements in the Indian context have acquired an international flavour involving overseas sportspersons, performing artistes, Hollywood stars and so on. Sure, they have to be brought into the tax net if only for the fact that at least a portion of the endorsement fees is contributed by the growing number of Indian consumers buying signature goods/services. It is a moot point if it can be legally sustained. Can the Government, for instance, enforce a levy of service tax on an international celebrity if the Bahamas (a tax haven) arm of a multinational enterprise enters into a contract with him and shoots a promotional film which is beamed to an Indian audience through a television channel broadcasting from outside the country?

There is no clear local entity on which the burden of tax can be fastened. If such endorsements are to be kept outside the purview of taxation then it would place at a disadvantage Indian celebrities and domestic enterprises that seek to use their services. Thus, an Indian cricket player with a celebrity value equal to that of the captain of the Australian cricket team may have to take a hit on endorsement incomes as otherwise he would be priced out of the market. Ditto for an Indian manufacturer of colour television sets, which may find itself in unequal competition with a South Korean major as the latter can escape the burden of service taxation by the simple expedient structuring the contract offshore.

More Stories on : Editorial | Advertising | Income Tax

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Endorsing a tax

India speeding on telecom superhighway

Government rides the wave

Fiscal deficit rumblers ahead

EU enlargement: It may stretch India's textiles sector

'Indo-British trade ties at their best'

Rural credit

Cattle products